Thursday, August 21, 2008

Money Morning has a 2 part Interview with Jim Rogers who is always someone we want to listen to. Why? He is correct a lot of times. For those who don't know this is one of the best hedge fund managers of the previous generation - he seems to have basically hung it up since 1980 other than investing for himself.

Rogers first made a name for himself with The Quantum Fund, a hedge fund that’s often described as the first real global investment fund, which he and partner George Soros founded in 1970. Over the next decade, Quantum gained 4,200%, while the Standard & Poor’s 500 Index climbed about 50%.

And he made some historic market calls: Rogers predicted China’s meteoric growth a good decade before it became apparent and he subsequently foretold of the powerful updraft in global commodities prices that’s fueled a year-long bull market in the agriculture, energy and mining sectors.

He has moved his family to Singapore and has a nanny for his daughter that only speaks Mandarin Chinese so she can prepare for the coming era. When last we heard from him he was bullish on commodities, bearish on banks, the dollar, and the actions of the Federal Reserve [Apr 8: More Jim Rogers] [Feb 13: Jim Rogers on Commodities] So one would think after all these trades reversed on him in July and most of August he must be panicking. Not so much; although he did COVER his financial shorts last week because of the "interventions" by government it appears. Rogers always says he is the worst trader there is - he picks trends, he is early and he sits in them for years. Many times along the way there will be countertrends that move in opposite direction of the prevailing trend.

So let's check in on the first part of his interview. We'll post the 2nd part tomorrow. Some of the things he is saying, if you heard it a year ago you'd laugh it off (see Roubini). Now while many still seem to be "outlier" events no one can dare "dismiss" them. Anything seems possible in our new era. What worries me is quite a few smart people seem to share similar views that are quite traumatic in nature.

The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae (FNM) and Freddie Mac (FRE) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning.

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won’t be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said. The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”

Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.

Jim Rogers:There was a train wreck, yes. Two or three – more than one, as you know. [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue. Which is going to cover things up for a while. And then I don’t know how long the rally will last and then we’ll be off to the races again. Whether the rally lasts six days or six weeks, I don’t know. I wish I did know that sort of thing, but I never do.

(Q):What would Chairman Bernanke have to do to “get it right?”

Rogers: Resign. (not the first time Rogers has said this) :)

(Q): Is there anything else that you think he could do that would be correct other than let these things fail?

Rogers:Well, at this stage, it doesn’t seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market’s going to do it whether he does it or not, eventually.

The problem is that he’s got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. Yeah, that’s what he could do. That would help. It would cause a shock to the system, but if we don’t have the shock now, the shock’s going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. (JPM)] was one thing and then it’s Fannie Mae (FNM), you know, and now Freddie Mac (FRE).

The next shock’s going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management. They’ve been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “dot-com bubble” shock, so I guess Bernanke could try to start reversing some of this stuff.

But he has to not just reverse it – he’d have to increase interest rates a lot to make up for it and that’s not going to solve the problem either, because the basic problems are that America’s got a horrible tax system, it’s got litigation right, left, and center, it’s got horrible education system, you know, and it’s got many, many, many [other] problems that are going to take a while to resolve. If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better.

But this is academic – he’s not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign. That’ll be the best solution. Is he going to do that? No, of course not. He still thinks he knows what he’s doing.

Rogers:I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.

Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world.

I don’t know why it doesn’t sink in. People have other things on their minds, or don’t want to be bothered. Too complicated, or whatever.

I’m sure when the [British Empire] declined there were many people who rang the bell and said: “Guys, we’re making too many mistakes here in the U.K.” And nobody listened until it was too late.

When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.

(Q):Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?

Rogers:Bernanke is a very-narrow-gauged guy. He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.

Bernanke was [on the record as saying] that there is no problem with housing in America. There’s no problem in housing finance. I mean this was like in 2006 or 2005.

(Q):Right.

Rogers:He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else.

(Q):That’s problematic.

Rogers: It’s mind-boggling. Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics. His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows.

Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields. And his is printing money, which he’s good at, we know. We’ve learned that he’s ready, willing and able to step in and bail out everybody.

There’s this worry [whenever you have a major financial institution that looks ready to fail] that, “Oh my God, we’re going to go down, and if we go down, the whole system goes down.”

This is nothing new. Whole systems have been taken down before. We’ve had it happen plenty of times.

(Q):History is littered with failed financial institutions.

Rogers:I know. It’s not as though this is the first time it’s ever happened. But since [Chairman Bernanke’s] whole career is about printing money and studying the Depression, he says: “Okay, got to print some more money. Got to save the day.” And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.

(Q):And now we’ve got a dangerous precedent.

Rogers:That’s exactly right. And when the next guy calls him up, he’s going to bail him out, too.

(Q):What do you think [former Fed Chairman] Paul Volcker thinks about all this?

Rogers:Well, Volcker has said it’s certainly beyond the scope of central banking, as he understands central banking.

(Q):That’s pretty darn clear.

Rogers:Volcker’s been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We’ve had couple in our history: Volcker and William McChesney Martin were two.

You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party’s out of control.

(Q):This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?

Rogers:Yes. We had two central banks that disappeared for whatever reason. This one’s going to disappear, too, I say.

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